Economy faces many challenges in the second half of 2020

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Vietnam's economy faces many difficulties due to the impacts of Covid-19 on input and output of domestic production. Photo: ST

Public investment should focus on essential areas

According to the National Center for Socio-Economic Information and Forecast, Vietnam's economy in the second half of the year is assessed to have better prospects thanks to the Government's efforts and the positive impact of the Government's policies.

In addition, the positive effects from trade agreements and the advantages that Vietnam obtains are positive factors affecting domestic trade and production.The driving force of economic growth in the last six months of 2020 is determined through 3 pillars:stimulating consumption, promoting investment and expanding markets.

According to the agency, recovery signs of the import market are a basis for the recovery of processing, manufacturing and exporting industries. Stable macroeconomic situation, inflation in a downtrend, low credit growth are the basis for expansionary fiscal and monetary policy and this is an opportunity for increasing aggregate demand.

However, besides the opportunities, the Vietnamese economy still faces many challenges such as: the risk of the second wave of the Covid-19 pandemic, the difficulties of input and output of domesticproduction, disbursement of public investment, unstable consumption psychology, potential risk of inflation and pressure to increase exchange rates, the trend of credit reduction shows the production scale of the economy is under pressure on shrinking production.

Proposing solutions for Vietnam in the future, Mr. Tran Toan Thang, Head of Industrial and Business Economic Forecasting Department (National Socio-Economic Forecast and Information Center), said public investment is considered as apriority in reviving the economy because during the post-Covid 19 period, enterprises would face difficulties in capital, soprivate investmentwould be difficult to recover as before.

The government has a policy of accelerating the disbursement of public investment to promote economic growth.

“Regarding the orientation of public investment, in the future, it is necessary to focus on essential areas for the process of sustainable development and economic transformation in the context of post-Covid-19,such as digitalinfrastructure, infrastructuresconnecting and serving to improve supply chains.

“Regarding continuing to encourage the promotion of private investment,we believe thatthere should be measures to support loan interest and tax reduction for projects, especiallyprojectswith potentialdevelopment and creating more jobs in the future.At the same time, continuing to restructure operations of credit institutions towards giving priority to production loans and investment projects applying new technologies,”Mr. Thang said.

According to Mr. Tran Toan Thang, difficulties covering the economy in terms of exports and consumption are obvious. The government is trying to promote measures to stimulate growth. However, the growth figures are not important, but now the policies must create the basis for economic recovery in 2021-2022.

Controlling the epidemic is a prerequisite

According to experts of the Institute for Economic and Policy Research (VEPR), Vietnam's economic prospects in 2020 depend on the ability to control diseases not only in the country but also around the world. Besides the factors that can support growth in the remainder of the year include expectations about economic prospects brought by the signing of the EVFTA and IPA, disbursement progress and construction of key public investment projects are accelerated as expected, macro environment are stable, inflation is under control at an average level.

Assoc.Prof. Pham The Anh, VEPR Chief Economist, said that Vietnam was also facing many risks and challenges in an unstable economic environment and uncertain future. Specifically, the recurrence of Covid-19 in many countries was accompanied by blockade measures that prolong the break of the supply chain; geopolitical conflicts among large countries could make an open economy like Vietnam face unexpected risks.

In addition, the weakness of Vietnam's economy also came from internal risks such as large fiscal imbalance,speed and level of development investment, especially infrastructure was slow; although the health of the banking - financial system has been gradually strengthened,it was still vulnerable;public investment efficiency was lowandinterference of State public was heavy.

According to MPI Minister Nguyen Chi Dung, in the first six months of Vietnam had achieved positive growth, but the final months of the year were still facing many difficulties, especially before the complicated development of the Covid-19 epidemic in Danang.

“The lesson of Covid-19 back to Da Nang is in front of our eyes, it could make the economic situationslow, causing great damage. Therefore,the prerequisite is to control the disease.The earlier we control it, the more room for economic recovery, receiving new gains, new opportunities. In recent years,the Government has taken measures to promote socio-economic development and this is an important time for ministries and localities to step up the implementation of these solutions,” Minister Nguyen Chi Dung said.

VEPR experts noted that, due to limited financial resources, Vietnam could not pursue macroeconomic policies in the same way as other countries. If Vietnam loosened monetary policy on a large scale like many current economies, it could lead to devaluation of the domestic currency, the investment environment becomes more risky, delay foreign investment flows into Vietnam.

An opportunity to coordinate policy at this time is to promote infrastructure projects related to industrial zones, through credit policies towards this field.If the shift of investment from China helps Vietnam to welcome new investors, the preparation ofindustrial infrastructure isgrounded and allowing an appropriate credit policy may boost motivation for private and international investors.

Regarding the administration of the economy, Mr. Nguyen Anh Duong, Head of the General Research Department, Central Institute of Economic Management said that in the second half of the year, to achieve the highest growth, the management work must link to updating and evaluating growth scenarios. But Mr. Duong emphasized that if the fiscal policy was expanded, we would have growth, but there would be great consequences on inflation, macroeconomic instability, sofiscal and monetary supportis necessary, but we must study and evaluate support time and level.